Vivendi Universal: In a Strategic Flux

            

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Themes: Corporate Restructuring
Period : 1996 - 2003
Organization : Vivendi Universal
Pub Date : 2003
Countries : France
Industry : Media & Entertainment

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Case Code : BSTR054
Case Length : 17 Pages
Price: Rs. 500;



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On a Buying and Selling Spree Contd...

TABLE II
VIVENDI MEDIA AND COMMUNICATIONS BUSINESSES

-- The Music business was run by the Universal Music Group, which developed, acquired, manufactured, marketed and distributed, recorded music through its wholly-owned operations or its licensees in 63 countries. The music business also included one of the world's largest music publishing companies that involved the acquisition of the rights to and the licensing of musical compositions.
-- The Publishing business involved providing content to areas like education, literature, games and healthcare. The business, which was considered the industry leader, provided content in these areas through multiple platforms.
-- The TV and Film business was involved in the production and distribution of motion picture, television and video products throughout the world. It also had ownership interests and operated a number of cable and pay TV channels. The company also engaged in licensing of film property rights and merchandising. It also operated theme parks and retail stores throughout the world.
-- The Telecommunication business provided a broad range of telecom services that included fixed and mobile telephony services. It also provided data services and Internet access, mainly in Europe.
-- The Internet business involved the management of strategic Internet initiatives and online ventures for the parent company. The Internet business developed e-commerce, e-services and thematic portals that offered access to the Internet through various devices like mobile phones, PCs and interactive TV.

Source: adapted from www.tcg.org.

The company also sold some of the subsidiaries that Messier thought were of no use to the existing business. The Canal Digital Satellite operation was sold to a Norwegian telecommunication company, Telenor, for $ 256 million. A 9.9% stake in Havas Advertising was sold for € 453 million.

By May 2001, Messier seemed to be on 'a-deal-a-month' spree, prompting analysts to evaluate the necessity of the speed at which the deals were being made and the money being spent. In May 2001, Messier bought the online music company MP3.com for $ 372 million. In June 2001, he bought Houghton Mifflin, an education publisher for € 453 million. Since January 2001, Messier had spent a total of $ 7 billion on various deals. Criticism of Messier's deals centered on the lack of a clear strategic direction for the company and the alarming increase in the company's debt burden. According to a Standard & Poor estimate, VU had increased its net debt to over $ 11 billion since January 2001. Analysts felt that the company did not have the ability to increase its debt for acquisitions without damaging its credit ratings.

Commenting on this, Guy Deslondes, Standard & Poor's (S&P) VU analyst, Paris, said, "At this level of rating (triple B with a stable outlook) their ability to increase debt is basically exhausted. A long-term debt downgrade would mean VU's commercial paper rating would drop to A3, making it almost impossible for the company to raise short-term financing without turning to the banks."8

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8] Credit ratings of debt issued by companies aims to certify the serviceability of the debt. Agencies like S&P and Moody's take into account a host of features to rate the debt of companies on a comparative scale. Debts are graded on a scale of AAA to CCC (AAA being the highest 'quality' debt and CCC the worst), with A1, A2, A3 etc. (Moody's) and AA+, B- etc. (S&P) falling in between.